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The Real Effects Of TRAIN, The Administration’s New Tax Reform Law

Last week, President Rodrigo Duterte finally signed into law the first package of the tax reform initiative called the Tax Reform for Acceleration and Inclusion (TRAIN) measure. Generally, TRAIN will lower income tax rates for certain income brackets while increasing taxation on goods such as fuel, coal, cars, and sugar-sweetened drinks.

In a statement after signing the measure, Duterte said, “This is the administration's biggest Christmas gift to the Filipino people as 99 percent of the taxpayers will benefit from the simpler, fairer, and more efficient tax system. The law also addresses long and overdue corrections in our tax laws and introduces a more progressive tax system, where the rich and the poor contribute to give better services to our people.”

For an overview of the changes that will be introduced by TRAIN, here is a useful infographic by ABS-CBN that juxtaposes the before and after scenarios of the TRAIN implementation.



On the surface, it sounds like a really great deal, especially for the millions of middle-class Filipinos whose income ranges in the 20,000 per month mark since P250,000 of their annual income will not be taxed. Simply put, that means less tax, more money to spend on basic needs and necessities.

However, critics of the TRAIN have emphasized that while the reform will slash off taxes from the middle-class earners, the lowered income tax rates actually don’t affect the majority of Filipinos living under the poverty line since they have always been exempted by the tax law as minimum-wage earners.

Non-government organization IBON Foundation published on its website its argument that as much as 15.2 million families will be burdened by the increased taxes on certain goods without any income tax gains.

According to the commentary, “The overwhelming majority of Filipinos do not get any income tax benefits from TRAIN. Most of the country’s total 22.7 million families do not pay income tax because they are just minimum wage earners or otherwise in informal work with low and erratic incomes.”

“On the other hand, the poorest 15.2 million Filipino families not getting any increases in take-home pay will have to deal with more expensive food and drinks, cooking expenses, jeepney and bus fares, electricity and other goods and services next year. Prices will increase because of the direct and indirect effect of higher taxes on: sugar-sweetened drinks; oil products including liquid petroleum gas (LPG), kerosene, diesel, and gasoline among others; and coal. The burden on poor Filipinos can only get worse once it becomes clear what value-added tax (VAT) exemptions will be removed.”

The basic argument is that the increased taxes on fuel and coal will surely bring up prices of basic goods and necessities. This means that while the poorer families who have been earning at the minimum wage rate remain unaffected by personal income tax slashes, they will bear the additional burden of increased prices of basic commodities that will likely emanate from the increased coal, mining, automobile, and petroleum taxes.

According to the provisions of the TRAIN, the additional tax that will be collected will be funneled into the administration’s Build, Build, Build Program, which seeks to create infrastructures that will address the worsening problem of mass transport and road congestion, and increase constructions of educational and public facilities. A portion of the new taxes will also go to projects aimed at providing better social services for Filipinos such as projects that seek to better education conditions, target nutrition, and create more employment and housing.

Some things look a bit peachy, some things look a bit grim. But since all of these are just promises and possibilities, all we can do for now is wait for what really will happen once the new tax reforms roll in. And hopefully, once the real effects of the TRAIN come crashing down on us, we won’t regret the administration’s new move.